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Libya fund to buy Verenex for $293.7M in cash deal
2009-09-20
NEW YORK - Canada-based oil producer Verenex Energy Inc. said it has agreed to be sold to the Libyan Investment Authority for about $314.1 million Canadian ($293.7 million) in cash, after a better deal with a Chinese firm fell through. In a memorandum of understanding announced Friday, the sovereign wealth fund agreed to pay C$7.09 per share ($6.63 per share) for Verenex's outstanding shares, a steep discount to its original commitment of C$10 per share ($9.35 per share) in March, when it promised to match an offer by China's CNPC International Ltd. Based on Verenex's 44.3 million shares outstanding at June 30, the deal is valued at about $314.1 million Canadian ($293.7 million). Verenex's deal with CNPC had been troubled for months. In March, Libya's state-run National Oil Corp. said it would exercise its right of first refusal, which gave it the right to block CNPC's bid to buy the Canadian oil and gas firm. Verenex has operations in Libya's Area-47, a region estimated to hold roughly 2.15 billion barrels in crude oil reserves. Then in June, Libya's NOC claimed that Verenex had acquired Area 47 through an improper bidding process. CNPC remained interested after an Aug. 24 deadline for the deal passed without a decision from Libyan authorities, but in early September, Verenex announced that the Chinese company had withdrawn. Libyan parties made it clear verbally to Verenex that they wanted a lower price than the CNPC bid, Verenex CEO Jim McFarland said at the time. The agreement reached Friday has a significantly lower value than the original per share commitment, which would have brought the deal to a value of about $443 million Canadian ($414.3 million). Under the terms of the deal, a definitive agreement will be signed on or before Oct. 20. Verenex's board of directors said it unanimously determined that this transaction is the best alternative available to the company and its shareholders. The company said it has agreed to try to secure the agreement of its management and major shareholder, Vermilion Resources Ltd. -- which owns about 45 percent of Verenex -- to vote in favor of the deal. The LIA was established in 2006 by the Libyan government to manage the country's surplus oil revenues. Foreign investment has been flowing into Libya over the past few years, after the United Nations and United States lifted their sanctions against the North African country. It has been trying to communicate to the world that it is open for business, but Verenex's experience in Libya is an indication of the problems that can still occur. "They've made it easy to get in, but it seems to be difficult to exit, at least in our case, under normal business terms," McFarland said earlier this month.
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